What Determines The Wealth Effects Of Mergers And Acquisitions For The Shareholders Of Bidders?

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Abstract

Mergers & Acquisitions (M&A) have a major impact on business processes of a firm. The phenomenon of business mergers was first observed in the United States. However, with the passage of time, it is happening all around the world. This study aims to determine the wealth effects of mergers and acquisitions for the shareholders of bidder firms. This research has adopted the qualitative research methodology. The research has made use of secondary analysis. According to the secondary analysis conducted in this study, M&A activities create wealth effects for target firms shareholders. It demonstrates that shareholders of target firms enjoy benefits and gains as a result of M&A. On the other side, bidding firms achieve small gains or break even situations. In some cases, bidder shareholders also get negative returns.

Table of Contents

ABSTRACTII

CHAPTER01: INTRODUCTION1

Outline of the Study2

Chapter 01: Introduction2

Chapter 02: Literature Review3

Chapter 03: Methodology3

Chapter 04: Findings3

Chapter 05: Conclusion3

Background of the Study4

The Rationale of the Present Study5

Objective of the Study5

Problem Statement6

Research Question6

Ethical Considerations6

Limitation of the research6

Definition of Shareholders7

CHAPTER 02: LITERATURE REVIEW8

Value Creation Theories10

Redistribution Theories11

Neoclassical Theory12

Behavioral theories13

The Hubris Theory of Business mergers15

Impact of Mergers and Acquisitions or Target and Bidder Returns15

Target Returns15

Bidder Returns16

Means of Payment in Mergers and Acquisitions16

Comparison of abnormal returns between bidding and target firms18

Market model18

Market Adjusted Model20

The Application of the Market Model and the Market Adjusted Model22

The Bidding Firm23

The Target Firm23

Domestic versus cross-border M&A24

Focus Versus Diversification M&A25

Comparison of Bidding' Firms' and Target Firms' Abnormal Returns26

Overview of the Theoretical Background27

Motives for Mergers & Acquisitions - A Dual Perspective28

Shareholder Wealth Maximization Perspective28

Inefficient Management Hypothesis29

CHAPTER 03: METHODOLOGY31

Qualitative Research Methodology31

Appropriateness of Research Method31

Benefits of Qualitative Research Methods32

Data Collection32

Secondary Analysis32

Feasibility of Design33

Data Analysis33

Evaluation of Sources34

Assumptions of the Study34

CHAPTER 04: FINDINGS35

Modes of Acquisition Financing38

Impact of Merger Declaration of Shareholders' Wealth (Manoj & Jagandeep, 2008)42

Wealth Effects of Takeovers in Merger Activity Eras: Empirical Evidence from the UK (Tse & Soufani, 2001)43

Shareholder value of mergers and acquisitions: An empirical investigation of short-term performance in the European market (Flugt, 2008)44

The Transformation of Telecoms Industry Structure: An Event Study (Rieck, 2010)45

The Rationale behind Interim Tender Offers (Bradley, Desai, and Kim, 1983)45

Shareholder Wealth Effects of Corporate Takeovers (Franks and Harris, 1989)46

Bidder Returns in Interstate and Intrastate Bank Acquisitions (Baradwaj, Dubofsky and Eraser, 1992)46

Wealth Effects of U. S Bank Takeovers (Zhang, 1995)46

Shareholder Wealth Gains in Mergers: Effect of Synergy and Ownership Structure (Sudarsanam, Hoti and Salami, 1996)47

Capital Adequacy, Bank Mergers, and the Medium of Payment (Grullon, Michaely and Swary, 1997)47

Comparison of Average Abnormal Returns for Less than 50% Acquisition48

Findings of this Study50

CHAPTER 05: CONCLUSION52

Areas for further research58

Summary of Analysis and Conclusion59

REFERENCES61

CHAPTER01: INTRODUCTION

Introduction of Chapter 01

The introduction is the first chapter of this research. The introduction section will present a brief introduction of the study along with the outline of the dissertation. The research question will also be presented in this section. Every research work is required to consider ethical considerations. The ethical considerations of this research will also be presented in the introduction.

Business relies on takeovers and integrations in order ...